Aug12: Weekend edition #59

Flutter says FanDuel hit profitability in Q2, 888 H1s, Super Group Q2, sector watch - financial trading +More

Aug 12

Thought bubble

Sometimes, the last can be first. The news that FanDuel has reached profitability in the second quarter comes at the tail end of an already informative earnings season. Although there are caveats around the investment in a potential California launch, the clear statement of intent when it comes to profitability is a testament to the extent to which parent company Flutter did, to use the company’s favorite word, lean into US sports-betting and igaming.

They are, in the parlance, the team to beat.

Leader of the pack.

Flutter H1

US hits profitability in Q2 with positive adj. EBITDA of $22m, on track to reach FY profitability in 2023.
US H1 revenue up 50% to £1.05bn, adj. EBITDA losses up 53% to £132m.
Group revenue up 9% to £3.39bn, ex-US down 3% to £2.34bn.
Group adj. EBITDA down 19% to £476m.

Duel purpose: CEO Peter Jackson noted at one point on the earnings call that ex-the cost associated with FOX Bet, FanDuel actually recorded positive adj. EBITDA of ~$40m, adding half-a-million customers in the process.

Right ratio: Notably, while revenue rose 50%, marketing costs only went up by 29%.
Leadership: According to the state-by-state data, FanDuel recorded 51% market share in sports-betting in Q2.
NGR market share stood at 60% and GGR margins were 40% better than the rest of the market.
Cost per download: FanDule said it got 53% more downloads than its competitors for every dollar of marketing spend.

Peter Jackson: “While other people were pulling back from marketing in Q2, we carried on leaning in. We took as much business as we could.”

Brimful of confidence: CFO Jonathan Hill added that the extent of the customer base they expected to be bringing into 2023 reinforced the company's confidence in its US operations being EBITDA positive next year.

Family affair: In terms of product, Flutter said that 80% of its US handle was now being produced from in-house pricing and that this would soon rise to 90%. Jackson also pointed to the extent of FanDuel’s “parlay penetration” with 80% of customers playing a parlay in Q2.

Aussie read-across: Noting that in Australia, Flutter’s Sportsbet operation “launched the multis revolution” - parlay by another name - six years ago and “here we are still developing the product”.

All guns blazing: While talking about the clear pull back in Q2, Jackson said Flutter fully expected a “competitive start” to the NFL season.

Fight for the right: “We have to be very clear we have to win again and earn the right to win,” he said. “We shouldn’t be in any way complacent.”
“I’m sure everyone will come out with guns blazing again.”

Peter Jackson: “We did spend a lot more than we originally planned to, particularly in Q2. We pushed hard. I’m not sure we could have spent a lot more in the disciplined way.”

The rest

Preparing for the worst: In the UK & Ireland, Flutter said the business showed sequential improvement with online down 4% in the second three months of the year vs. a 20% drop in Q1.

The company said it had built sustainability into the business ahead of the UK government’s much-delayed White Paper.
Immunity: Hill noted the company was ”not seeing anything” in terms of the impact of the UK’s cost-of-living crisis.
“We have some good momentum in the business,” said Jackson. “Sky Bet is back on track and there are product improvements on the gaming side at Paddy Power.”

In Australia, Sportsbet saw revenue growth of 5% over the first half with the business prepared for a £73m annualized headwind in 2023 from the introduction of PoC regimes in Queensland, New South Wales and the Australian Capital Territory.

Around the globe: The international business will be boosted by the addition of Sisal. Flutter said H1 performance at the business - ahead of completion - saw revenues rise 58% to £402m while EBITDA was up 51% to £120m.

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888 H1

Revenue down 13% YoY to £332.1m and adj. EBITDA down 29% to £50m.
Excluding UK and the Netherlands revenue was up 2% YoY.
UK revenues down 25% to £120.8m, Italy down 5% to £46.5m, EMEA excl. UK and Italy down 5% to £113m, Americas flat at £46.6m, RoW up 5% to £5.3m.
US losses were up 30% YoY to £8.1m, FY22E and FY23E losses c£20m .

Margin call: With UK revenues down 25% the immediate focus for 888 will be on addressing EBITDA margins that dropped to 17-18% during Q2.

CFO Yariv Dafna said the group was ”not happy” with that and would be aiming for 20% plus EBITDA margins by the end of H2.

RG moves: The UK revenue drop was down to the responsible gambling measures adopted by the industry. Dafna said the group had made “massive progress” in setting up new RG procedures.

“We removed the (monthly player loss) threshold from £2000 to £950 and now it’s £500, that’s a massive change.”

Baked in: The set up required more resources internally and brought in additional data costs, said Dafna, but these were all baked into today’s results, “so there will be minimal impact in the future”.

Data point: Asked what percentage of the player base was recreational, Dafna said ARPU was down 29% while actives were stable, which meant the “nature of the player becomes recreational”.

Retail therapy: The group said it was very happy with William Hill’s £513m in retail revenue and £97m EBITDA.

CFO Yariv Dafna: “We expect that to continue with no change in the number of shops. They’re very optimized and running very well after COVID restructures.”

Complex integration: CEO Itai Pazner said there had been no unpleasant surprises as 888 discovered more about William Hill and the integration of both entities continued.

He praised the UK bookmaker’s “depth of talent and knowledge” but also said it “will take time, it’s complex”.
“There are no easy solutions, but 888 has been building its own platform for 25 years and we’re confident in our ability to migrate players and integrate external components to our platform.”

Save the date: Pazner said 888 would have more information on the project in Nov22 during the group’s investor day.

Pick and mix: Asked how 888 would decide on which brands or tech stacks to go with, Pazner said in gaming 888 has “best in class products” that could be used across the group, while William Hill’s “sports betting capabilities in both online and retail could be leveraged for 888”.

International anthem: He made a similar point when discussing international (ex-UK) markets.

Markets will be reviewed individually, “but there is huge potential in sports betting and gaming,” said Pazner, “888, William Hill and Mr Green all score really well in gaming internationally and there is really big potential in unifying the sports betting brands into one leading brand.”

Super Group Q2

Revenues down 9.6% to €320.8m, adjusted EBITDA fell 56% to €63.6m.
Africa and Asia regions down 35% and 28% respectively.
FY22 revenue guidance reviewed down c9% to €1.15bn-€1.28bn vs. $1.4bn, adj. EBITDA guidance lowered c40% to €200-€215m, EBITDA margin range forecast at 17-19%.
Cost reductions of $20-25m planned for FY23.

Global impact: Asked if the revenue and adj. EBITDA drops were down to macroeconomic issues, CEO Neal Menashe said Super Group was a “global company, so we will have currency fluctuations from APAC or Africa”.

“But,” he added, “we’ve always had them and we’ve continued to grow revenues, even if they are offset slightly by currency fluctuations.
“It’s the global nature of Super Group, we’re not just in the US.”

New guidance: Super Group’s Q1 announcement that it would issue lower FY guidance caused its share price to drop 16% in May and CFO Alinda van Wyk said the new figures meant the group’s focus would be on generating “high-quality revenue”.

Marginal drag: In North America, the group’s Betway brand has migrated to “Ontario’s regulator environment” and Spin will do the same next week.

Menashe said entry into newly-regulated environments “always has an impact” when asked if new regulations were usually a drag on margins. “We have got something in place to recover by year-end”.
When thinking about taxes, “the most important thing is that costs also come down thanks to better processing capabilities,” added van Wyk.

US acquisition: With regard to the US, the acquisition of Digital Gaming Corporation (DGC) is set to be finalised by year-end with the aim of breaking even by the end of 2024 or the start of 2025.

Eurotrash: The group continues to operate in the key German market, but is holding off from offering icasino products until there is more visibility on the tax rates. Menashe said he expects the group to be licensed in the Netherlands in 2023.

Betr/Hall of Fame partnership

The noisy micro-betting startup announces a market access partnership in Ohio with the Hall of Fame Village entertainment complex operator.

What you get is no tomorrow: The Jake Paul-fronted Betr, which made a splash earlier this week with a fundraise announcement, has announced a 10-year deal with Ohio-based Hall of Fame Restaurant & Entertainment to be an official sports-betting partner with the “football experience” operator.

Seeing only upside: The deal involves a revenue share and “limited equity interest” in Betr. Joey Levy, co-founder and CEO, said the arrangement enables Betr to “preserve cash while providing HOFV upside in Betr’s success”.

Village people: HoFV also recently announced a deal with Rush Street Interactive which will also involve a retail sportsbook outlet at the HoF village in Canton, Ohio.

The Betr agreement replaces a deal HoFV previously announced with Malta-based Genesis Global.

EBet

Downsizing: Ebet, previously known as Esports Technologies, has laid off “a large number of employees related to its esports betting business”, the newsletter Sharpr reports. COO Bart Barden will leave the company in early 2023 and Ebet will focus on its online casino operations.

Recall, Ebet acquired Aspire Global’s consumer-facing assets, including brands such as Karamba, Hopa and Dansk777, for $75.9m in Oct21.

Sector watch - financial trading

Stay with meme: Despite the financial markets managing to recover their poise in July, it came too late for many of the staff of financial trading platform Robinhood. At the start of August, CEO Vlad Tenev published a blog posting to announce that “approximately” 23% of the headclount were to be let go.

First cut is not the deepest: This was on top of the departures of 9% of the staff earlier this year, a move which Tenev said “did not go far enough”.
Unsettled: “I want to acknowledge how unsettling these types of changes are,” wrote Tenev.

Don’t stop meme now: Recall, Robinhood was one of the biggest beneficiaries (initially, at least, before the crowd - and Dave (Davey Dattrader’ Portno - turn against them) of the meme stock craze. Now, however, Tenev admits the company might have misjudged the permanence of that crowd’s engagement.

That was then: “Last year, we staffed many of our operations functions under the assumption that the heightened retail engagement we had been seeing with the stock and crypto markets in the COVID era would persist into 2022,” he admitted.
This is now: “In this new environment, we are operating with more staffing than appropriate,” Tenev said.

The earnings metrics: That new environment was clear in Robinhood’s Q2 earnings where it showed revenue rising 6% to $318m buit net losses still coming in at $295m off the back of operating expenses only decreasing 12% YoY.

Probe: Worse for Robinhood was that the SEC has been involved in a probe into the company’s compliance with short selling rules since October 2021. This is despite shorting being not currently possible on the Robinhood platform, according to the company.

Newslines

Massachusetts: Regulated sports-betting could launch in the next five months in Massachusetts following Governor Charlie Baker signing legislation into law. Mobile and retail betting will be allowed at casinos, racetracks and off-track betting locations.

Gaming Innovation Group via Sportnco has extended its partnership with the Argentina casino operator Grupo Boldt with the launch of its online betting and gaming brand Bplay in the Buenos Aires province.

Churchill Downs has entered into an agreement to sell 49% of United Tote Company to NYRA Content Management Solutions, a subsidiary of the New York Racing Association, owner of the Aqueduct Belmont Park and Saratoga racetracks. As part of the agreement, the United Tote pari-mutuel settlements business will be excluded and will remain with CDI.